Hazard Insurance Definition Overview How Does It Work

Hazard Insurance Definition

Explanation

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Hazard insurance covers property protection policies from natural calamities, i.e., an act of god. It is sometimes necessary as a standard home insurance policy does not cover every type of natural calamity and risk. The premiums for this insurance are costly compared to a standard home insurance policy as it covers more risk than the normal home insurance policy. Generally, it covers the structure of the home only and not the property inside it, i.e., if damage occurred due to the structure of the home or property, then the property owner gets the compensation according to hazard policy. Still, suppose damage occurs inside the property. In that case, the property owner won’t get compensation as per the hazard policy, but it can take coverage of damage to personal belongings due to natural calamities.

How does it Work?

The hazard insurance policy protects property owners against damage caused by natural calamities. It is an extension of homeowners’ policy. For example, suppose the property owner wants to cover the risk of damage to property structure caused by natural calamities, which include damage due to earthquakes, floods, landslides, storms, etc. In that case, a hazard insurance policy is taken to cover the risk. In addition, the policyholder can also get coverage of personal belongings through this policy.One should approach the insurance company to get this type of insurance policy. The insurance company then comes and visits the property and gets the valuation of the property depending on the current market value. Then will decide the premium to be paid by the policyholder depending upon the property’s value, location, and the risk of a loss occurring to the property due to natural calamities.Then after deciding on a premium, the policyholder pays and gets the risk coverage per terms of the policy. This policy can only be for one year and can renew.Now, suppose natural calamities occur and loss to property structure like the collapse of walls, etc. In that case, the property owner will approach the insurance company for the claim. Then the insurance company surveys the property and determines the value of loss and re-establishment. It then pays the cost to recover the damage as a policy claim.Sometimes in the case of a property mortgage, the lender might also be required to get the property hazard insurance as the lender wants full insurance coverage and then the hazard policy to be taken by property owners.

What does Hazard Insurance Cover?

Hazard insurance provides coverage for the structure of a home or property against certain risks as covered in the policy. The policy will also specify which calamity or risk excludes from the policy.

Usually, the followings include in the coverage of this policy:

There are two types of hazard policy (i) named peril policies and (ii) open peril policies.

Named peril policies cover the structure of the property and personal belongings.Open peril policies cover every danger except those excluded by insurers.

Hazard Insurance vs. Home Insurance

The hazard insurance policy covers the risk of damage to the property or home structure due to natural calamities. In contrast, the home insurance policy covers the risk of theft, legal liability, and medical bills if anyone gets injured due to home. In addition, it includes additional living expenses.Home insurance covers the internal risk attached to the property or home. At the same time, hazard insurance only covers external risks like damage to the structure.A hazard insurance premium will be on the value of the property or home and the area in which it is located. In contrast, the home insurance premium will be on the material used during the home’s construction. It focuses on quality.

Who Should take out Hazard Insurance?

Sometimes in the case of the mortgage, the lender will ask to take the hazard insurance as the lender wants to cover internal and external risks related to the property. Also, it is suitable for those who live in risky areas where the occurrence of natural calamities or risk of natural calamities is more. It is also useful for those who want full risk coverage, internal and external risk for them, as this assures owners that full risk related to property is covered.

Conclusion

Hazard insurance is the type of insurance that covers the protection of risk occurring to property due to natural calamities like floods, landslides, etc. It covers the structure of the home. Hazard policy generally is an extension of homeowners’ policy. In homeowners’ policy, internal risk and liabilities related to the home are covered. In hazard policy, external risk related to the property related to its structure is covered. Sometimes in the case of a mortgage, the lender will ask to get a hazard policy as it wants to cover the entire risk related to the property.

One cannot take a hazard policy without home insurance. But in areas of certain risks such as floods or landslides, homeowners often opt to take out separate insurance to cover specific contingencies. Claim in case of hazard insurance will be settled if a natural calamity occurs and it damages the structure of the home, and the claim will be the amount of cost of damage.